I used to use a bank until I was in college. My university was a member of a statewide credit union, and, with that, I was eligible to become a member of it as well. Since then, I haven’t looked back. A lot of people are curious as to which financial institution they should put their money in; we’re going to look at that a bit today.
Let’s define things and then talk about how they’re different. First up, banks.
Bank- “an organization, usually a corporation, chartered by a state or federal government, which does most or all of the following: receives demand deposits and time deposits, honors instruments drawn on them, and pays interest on them; discounts notes, makes loans, and invests in securities; collects checks, drafts, and notes; certifies depositor’s checks; and issues drafts and cashier’s checks.”
Credit union- “non-profit financial institution that is owned and operated entirely by its members. Credit unions provide financial services for their members, including savings and lending. Large organizations and companies may organize credit unions for their members and employees, respectively. To join a credit union, a person must ordinarily belong to a participating organization, such as a college alumni association or labor union. When a person deposits money in a credit union, he/she becomes a member of the union because the deposit is considered partial ownership in the credit union.” (Definitions provided by investorwords.com)
There’s something I want you to see in the definition of a credit union that is vital for understanding the differences between the two: non-profit. Credit unions are not out for themselves; they don’t consider the people who they serve as customers; instead, they’re members of the union. In order to be part of a credit union, you have to be a part of whatever they serve. Some are community based, like mine. Others are based on unions, organizations (like the one for my university) and other common groups of people.
Banks have an issue with credit unions, claiming they have an “unfair advantage” and that they take business away from them. Most credit unions offer more fair rates, less fees, and more personalization than banks. Since the Credit Union Act of 1934, banks have lobbied to the government for the credit unions to be restricted or eliminated, to no avail.
Credit unions were at a disadvantage to banks because they didn’t offer as many services as their counterparts. Recently, many credit unions have begun to offer more services that help them to compete with banks more readily. Banks usually are more apt to offer credit cards, because of the costs involved. Banks have more revenue, because of being for-profit, so credit cards and other things that have a higher start-up cost may be more readily available at banks than credit unions.
The locality that credit unions offer is both an advantage and disadvantage, so if you are someone who travels a lot, you may want to consider a bank with a national chain instead. Some credit unions have decided to thwart this a bit by offering to credit a certain amount of ATM fees a month. Also, many convenience stores (Sheetz, Wawa) now offer surcharge-free ATMs. These two things help thwart the costs that used to accrue because of the locality.
Which should you get? As you can probably tell by this post, I’m a fan of credit unions. But, make sure to check out the credit unions and banks in your area to make sure that you’re putting your money where it will grow and be safe and secure. Have a great week!